KASSIA critical of defining MSMEs by turnover; unhappy with proposed definition

The new proposed definition for micro, small and medium enterprises (MSMEs), which uses turnover as the basis, was criticised by the Karnataka Small Scale Industries Association (KASSIA) on Monday, reported The Hindu BusinessLine. According to Basavraj S Javali, President, KASSIA, considering turnover alone will not help the sector.

“The Union Cabinet has come up with a draft completely revising the definition of MSME. This uses turnover as the basis. However, as per the MSME Act 2006, they are defined on the basis of investment in plant and machinery,” he said.

Javali’s primary concern is that the new definition will bring a large number of firms within the definition of SME. “This is a serious worry because the definition will likely crowd out a large number of small units from the benefits targeted at them as there will be a higher demand for such benefits from a greater number of businesses,” he explained.

KASSIA is also concerned that the distinction between manufacturing and service will be removed in the new definition. “This will add to the numbers and negatively impact manufacturing, thereby affecting creation of jobs and enterprise development,” Javali added. “There is a strong feeling among MSMEs that the investment in plant and machinery criteria should be maintained with suitably increased limits.”

GST on labour charges was the next bone of contention. “Job work was earlier exempted from payment of tax under the VAT. However, with the introduction of GST, labour charge is taxed at 18 percent, which is causing lot of hardship to the micro and small units, who are the main players performing the service for larger units,” he said. However, the proposal for the new definition is still in the draft stage. It requires amendments to be made to the MSME Act and then passed in Parliament.

KASSIA’s statements come around two weeks after the organisation publicly highlighted that MSMEs in Tier-II and Tier-III cities and rural areas faced more survival challenges despite being treated as a priority sector. It had made the statement while recognising that access to easy finance and modern technology, regulatory constraints and lack of basic infrastructure were hindering MSME growth. Other factors identified were the dearth of marketing and distribution networks, skilled labour and outdated labour laws.